Australian housing is set to rise onward forever without a problem. Or….not.

One of the world’s pre-eminent ‘bubble hunters’ Edward Chancellor, from US investment bank GMO, says that Australia’s housing bubble is looking precarious as it is by his estimates up around 50% more than fair value.

Mr Chancellor, speaking to The Australian said “If house prices were to revert to their historic long-term average (ratio of average price to average income) they would fall quite considerably.”

Failing to do so would defy every asset bubble in history.

Take a look at the charts below and see if you find yourself thinking ‘yeah, this can go on just like this, no problems’. Cheers to the April RBA chart pack for two of the charts below.

Lets start with everyone ability to pay off their debt. Below is a chart showing that real household disposable income at the end of 2009 was dropping.

RBA-household-consumption-and-income-growth

Next we take a look at household debt and interest rate payments

RBA-Household-debt-and-interest-payments

And finally we take a look at the extraordinary chart below which shows exactly where Australian housing prices are and how they’ve grown since 1992. Looks more like a double black diamond ski slope than a sustainable, steady growth, asset class. Hat tip to this site for the image.

Looks totally sustainable and not at all bubble-like don’t you think? What’s everyone so worried about?